Alphabet Stock Plummets After Earnings Report, but Analyst Sees Opportunity

Alphabet's (NASDAQ:GOOGL) recent earnings report sent the stock plummeting 7.13% on a 199.41% EPS beat and 24% revenue growth, but this market reaction is viewed as mispricing by Alex Sirois. He sees the stock as undervalued due to its strong financials, including a P/E near 16, an earnings yield of 6.33%, and a free cash flow yield of 3.51%. The company's Cloud business grew 82% year over year in Q2, with a backlog of $514 billion.

Sirois notes that other hyperscalers like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) received positive reactions to their earnings reports, despite similar AI spending announcements. He believes Alphabet is the cheapest entry into the AI infrastructure buildout due to its lower market valuation.

The analyst points out that Google Cloud's operating margin expanded from 20.7% to 35.6% year over year in Q2, with nearly 90% of Fortune 100 companies using Gemini Enterprise. The company's balance sheet remains strong, with a debt-to-equity ratio of 0.14 and interest coverage of 903x.